World Winning Cities. Global Foresight Series. Kochi. India s Rising Urban Star

Transcription

1 World Winning Cities Global Foresight Series India s Rising Urban Star

2 India s Rising Urban Star, 2008 World Winning Cities Jones Lang LaSalle s World Winning Cities programme is a multi-year research initiative designed to assess future city competitiveness, and to predict the rising urban stars amongst the world s emerging markets in India, China, Central and Eastern Europe, the Middle East, North Africa and Latin America. The programme was launched in 2002, and over the past six years we have assessed the city competitiveness of many of the world s emerging cities, based on rigorous and objective assessment of the key drivers of city success. Our research covers not only the standard measures of future performance (relating to the economy and demography), but we have also developed a framework for embracing softer metrics such as sustainability, quality of life, culture and city governance; issues that are just as crucial in determining a city s long term success. Delhi In one of our first studies back in 2003, we highlighted India s Tier I cities Delhi, and as being amongst a new wave of city winners, possessing many of the pre-conditions to develop into World Winning Cities. We subsequently observed this success filtering down to India Tier II cities, with cities such as,, Pune and Kolkata now on the radar of cross-border real estate investors, developers and occupiers. Since 2005, the programme has focused specifically on real estate opportunities across India. We have produced three major thought pieces on the Indian real estate market: India Tier III Cities. The Next IT Offshoring Locations (2005) provided an assessment of prospects for 17 Tier III cities as potential locations for IT offshoring. We identified five cities that were best positioned to emerge as major centres over the next five years. India Investment Futures (2006) assessed the opportunities in the Indian Real Estate Investment Market following the relaxation of FDI regulations, which has generated substantial interest from cross-border investors. India Retail The India 50 (2007) set out to explain and predict the emerging geography of Indian retail activity and property opportunities. We identified and developed a new typology for 50 cities that we believe will be on the radar screen of retailers, developers and investors. The World Winning Cities programme is now seeking to identify the next wave of rising urban stars among India s Tier III cities; cities which we believe will be on the radar screen of the real estate industry over the coming decade. Our India 30 research, launching in 2008, sets out to provide new insights into the real estate opportunities across 30 of India s Tier III cities. stands out as offering amongst the most favourable prospects of the India 30. The city offers shining possibilities across all sectors due to a favourable combination of wealth, connectivity, infrastructure, labour skills, low operating costs and tourist appeal. This report focuses on the economy, business environment and real estate market in one of India s most dynamic and highly rated Tier III cities. Kolkata Andhra Pradesh Vijayawada Vizag Pune Karnataka Mangalore Thiruvananthapuram Mysore Tamil Nadu Coimbatore Kerala Cover image: Sunil C.K., 2008

3 India s Rising Urban Star, 2008 India s Rising Urban Star, formerly known as Cochin, is the economic capital of the South Indian state of Kerala. For centuries, it has been a centre of trade and commerce due to its strategic location along shipping routes between Europe, Asia and the Middle East. While a major seaport continues to exist in today, its commercial activities have diversified considerably. IT/ITES (Information Technology Enabled Services), banking and tourism dominate the city s economic landscape. The Government of Kerala has been proactive not only in promoting the city as an attractive leisure and business destination but also in developing the infrastructure required to support such activities. is a leading city in India in terms of telecommunication and transportation infrastructure. is quickly transforming into a key IT/ITES hub in South India. The city provides an enviable mix of a highly educated population, low labour & operating costs, attractive real estate options and solid infrastructure. Many of India s leading technology firms have already recognized the competitive advantages that offers by expanding their operations into the city on a large scale. A greater corporate presence in the city, and the ensuing job creation, has led to an increase in real estate development activity across all major sectors. Newly built malls, hotels, apartment complexes and business parks are transforming the landscape and urban form of. Both national and international property developers have started focusing on to take advantage of the favourable economic conditions and cheap land costs (relative to Tier I cities). Opportunities currently exist across all market sectors in. The market is rated as the most mature amongst India s Emerging Cities 1. Our India Real Estate Market Maturity Index, which scored Indian cities on the basis of real estate market transparency and overall volumes of office, retail and hotel market activity, places ahead of cities such as Nashik, Jaipur and Mangalore, and ties for first place with the city of Chandigarh. One of India s most dynamic and highly rated Emerging Cities A growing market that has a diversified economy with breadth of activity Favoured by IT/ITES firms due to its highly skilled talent pool, low operating and real estate costs, good connectivity and excellent telecom infrastructure Active real estate market with opportunities across all major sectors Expanding tourist destination that serves as the gateway to Kerala s famed coastal backwaters Wealthy population that drive retail activity Most favoured investment destination for Non- Resident Keralites Fig 1: Economic Dashboard Fig 2: Real Estate Market Maturity Index Size Growth Infrastructure Investment & Wealth Education and Labour Business Population ( ) Employment ( ) Population (% pa *) GDP (% pa *) Air Passengers ( ) Freight Traffic ( 000 tons ) FDI as % GDP (2005*) Income / Capita (USD 2006) Savings / Capita (USD 2006) Higher Education Institutions (2007) Total Enrolments ( 000s *) Literacy Rate (%) Unemployment Rate (% 2006) Real Estate Transparency (Grade) Human Capital Index (Grade) 1, ,563 15, , * State-level data + Projected See Definition of Terms B C Chandigarh Jaipur Ahmedabad Thiruvananthapuram Nagpur Vizag Coimbatore Mangalore Nashik Indore Ludhiana Goa Lucknow Vadodara Vijayawada Bhubaneshwar Mysore Surat Emerging Indian cities Score 1 India s Emerging Cities exclude the larger metros of Delhi,,,, Kolkata, and Pune.

4 India s Rising Urban Star, 2008 Economy & Key Industries s traditional economies, anchored by tourism, continue to remain strong while the IT/ITES and BFSI sectors have fuelled an economic boom in the city Fig 3: Labour Costs Delhi (NCR) Pune Kolkata Chandigarh Mangalore Indore Vizag Jaipur Nagpur Coimbature Ahmedabad Source: Ma Foi Management Consultants, 2006 Fig 4: Attrition Levels Due to its strategic location, has long been a centre of trade. For centuries, the city was renowned for its spices, jewellery, apparel and fishing industries. In recent times, the Port of Cochin and the local tourism industry have also contributed significantly to the local economy. While these industries continue to remain strong today, they have been augmented by the IT/ITES and financial services industries. As a result, is witnessing an economic boom, and residents of the city had an annual per capita income of USD 2,002 (in 2006), the 5 th highest in India. 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Annual Salary (USD) Delhi (NCR) Pune Chandigarh Kolkata Indore Ahmedabad Jaipur Vizag Coimbature Nagpur Mangalore IT IT ITES Attrition Rate (%) ITES IT/ITES The IT/ITES boom in is driven by a combination of factors, which include cheaper real estate costs compared to India s larger and more mature metros; some of India s best communications infrastructure, low labour costs and low attrition rates. These, combined with the Government of Kerala s initiatives to promote IT/ITES within the state have served to make a very attractive destination for some of India s top technology firms. Indeed, amongst India s Emerging Cities, leads the pack with the highest number of IT & ITES players already having a presence. In addition to numerous smaller players, major firms such as Wipro, Tata Consultancy Services and Cognizant have an active presence in the city. Tourism Kerala s natural beauty and its coastal backwaters have made it one of India s top tourism destinations. The World Travel & Tourism Council has rated Kerala as one of its top three tourist destinations, and National Geographic magazine has included it in its Places of a Lifetime list. Marketing campaigns such as Incredible India and God s Own Country have further fuelled domestic and international tourist arrivals in the state. Tourism has been a traditional driver of the economy and will continue to be so going forward. While itself is not a major tourist destination, it does serve as the gateway to Kerala s coastal backwaters. As such, reaps the benefit of the tourism receipts earned by Kerala. Approximately 18% of all tourism revenue in the state of Kerala went to in Source: Ma Foi Management Consultants, 2006

5 India s Rising Urban Star, 2008 Recognising the importance of tourism to the local economy, city officials have launched initiatives to ensure the continued growth of tourism in : A new, modern airport has been built and is already operational The coastal backwaters around are being further developed to accommodate more tourists A new cruise ship terminal is being built in the Port of Cochin Skyline Photo courtesy of Dr. Vipin Banking and Financial Sector As the economy of continues to grow, many firms from the banking, financial services and insurance (BFSI) sector are establishing a presence within the city. Their business is driven not only by corporate clients and the growing population of the city, but also by Non- Resident Keralites (NRKs) who continue to have financial ties to their home state. Banks such as HSBC, Citibank, ICICI and Standard Chartered have set up outlets throughout the city, many of which are located in prime areas. Port Activities The Port of Cochin is synonymous with the city of. Located on Wellingdon Island, the port has traditionally been one of the main economic drivers of the local economy as well as one of the largest employers in the city. While the Port of Cochin is one of the smallest major ports in India, it is embarking on a USD 2.4 billion modernization project that will enable it to take market share away from competing ports in Gujarat, Maharashtra and Tamil Nadu. Gold and Spice Trading Trading of spices and gold has had a long history in. While spice trading has diminished in recent years, the gold industry has remained strong. Many prominent gold retailers such as Alapatt, Josco, and Alukkas call their home base and the city is dotted with numerous showrooms and exhibition halls. Fig 5: Tourist Arrivals in Kerala Millions of Tourists Source: Government of Kerala, Department of Tourism Fig 6: Tourism Receipts in Kerala USD Millions ,000 2,500 2,000 1,500 1, Foreign Year Foreign Exchange Earnings Total Revenue Generated from Tourism (Direct & Indirect) Source: Government of Kerala, Department of Tourism Domestic

6 India s Rising Urban Star, 2008 Urban Form & Infrastructure A collection of small islands, a large peninsula and the mainland expanding to the north and east collectively make up the modern city of Urban Form The city of is located on Kerala s central coast in the Ernakulam district. A collection of small islands, a large peninsula and the mainland collectively make up the modern city of. Suburban districts and the new Cochin International Airport have recently stretched the boundaries of the greater metropolitan area to the north and the east. Mahatma Gandhi Road (or M.G. Road) on the mainland is the centre of commercial and retail activity in. This north-south artery serves as both a high street and CBD for the city. Limited space has caused merchants and corporates to look for space immediately adjacent to M.G. Road, mostly towards the east. Marine Drive, s prime residential neighbourhood, can be found along the coast close to the northern end of M.G. Road. 5 km 5 mi Vypin KOCHI (Ernakulam District) Bridge CBD SBD PBD Fort Cochin Bolgatty Vallarpadam Marine Drive Port of Cochin Wellingdon Fort, located on a peninsula in the southwest corner of the city, is where Portuguese colonists established the first European colony in India during the 16 th century. Today this area is mostly a middle-class and upper middle-class residential colony with traces of colonial architecture and urban planning. Wellingdon Island, located between the peninsula and the mainland, is where the Port of Cochin is located. Almost the entire island is used for industrial activities by the port and railways. The neighbouring islands of Vypin, Vallarpadam and Bolgatty are also slated for mostly industrial use, with some middle-class homes also planned. MG Road CBD NH17 SBD Palarivattam Vytilla NH47 Cochin International Airport Edapally Kalamassery NH49 PBD Kakkanad Further to the east, National Highway 47 runs parallel to M.G. Road. This vital artery is where many of s new malls are being developed. NH-47, and the parallel Airport-Seaport Road to the east, provide a crucial link to the northeast suburbs and the international airport. s new IT parks and Special Economic Zones (SEZs) are found in the northeast suburbs of Kalamassery and Kakkanad. A great deal of new residential development is also happening in these areas. Future residential development is slated for development east of the Airport-Seaport road. A Major Seaport The Port of Cochin, one of India s twelve major ports, has ambitious plans for infrastructure development over the next 5 years. The numerous projects that are planned will start to come online in 2008 and continue through to In addition to expanding the range of services that can be offered, these infrastructure projects will create economies of scale that will make the port more cost and time competitive with others throughout South and Southeast Asia. The Port of Cochin s intrinsic advantages ensure that it will continue to remain one of India s leading ports. They include: A location just 11 nautical miles from a major shipping lane that connects the Middle East to the Far East; An all-season port that can handle large vessels; Good connectivity to the rest of India by rail, road, air and backwaters;

7 India s Rising Urban Star, 2008 As the port expands, there will be an increasing amount of industrial activity on Vypin, Vallarpadam and Bolgatty islands. Many of the additional workers that will be hired by the port are to be housed in new residential developments on these same islands. These new workers, along with the Port of Cochin s improved facilities will play a critical part in its plans to increase overall traffic handled and market share within India. Excellent Air Connectivity More than 2.5 million air passengers used Cochin International Airport in , making it the 7 th busiest airport in India. The airport, built in 1999 as India s first greenfield public-private partnership civil aviation project, ranked 4th in terms of international air passengers. No other airport within India s Emerging Cities ranks as high in both categories. Cochin International Airport is the only airport in the country besides and Delhi that can handle large commercial aircraft such as the Airbus 380 (the largest passenger plane in the world). It has excellent connectivity to other cities within India and has direct international flights. This has served not only to boost tourism within but has also had a positive impact on the number of companies that have launched operations within the city. Improved Road Connectivity A growing population and an increase in the number of cars per household have worsened the traffic congestion within. To address this issue, a 30km outer ring road project the Cochin Airport- Seaport Highway is being constructed. When fully operational this corridor will connect many of the industrial and commercial zones of the area and reduce the travel time from the sea port to the airport by half. is well connected to other cities in India via the national highway system. Three national highways (NH-47, NH-17 and NH-49) pass through or near the city. This allows commercial traffic from both the airport and seaport to connect easily to the national grid. First Rate IT Connectivity s excellent internet connectivity bodes well for the development of the city as an IT/ITES hub. The city is better connected than most cities in India, having both the SAFE and SEA- ME-WE3 optical submarine telecommunication cables land in. Such connectivity has helped in attracting IT & ITES firms. Technology Parks & SEZs has been a pioneer in the adoption of SEZs. The Cochin SEZ was one of the first in the country and housed businesses from a variety of industries. After a long break in SEZ development, two new technology-focused SEZs, Infopark and SmartCity will be completed in the short to medium term in the Kakkanad suburb of. These will be augmented by facilities such as the Muthoot Technopolis, the Port of Cochin s SEZ, and the KINFRA Information Technology & Electronics Park, which will further boost commercial activity in the city. Fig 7: International Air Passengers Passengers (Millions) Delhi Source: Airports Authority of India Thiruvananthapuram Kolkata Ahmedabad The pillars of s superb infrastructure are its large sea port, modern airport, excellent IT connectivity and technology parks/sezs Goa Jaipur Lucknow Nagpur Pune Mangalore Coimbatore

8 India s Rising Urban Star, 2008 Labour, Education & Demographics With a population of 1.5 million inhabitants in its metropolitan region, is the largest urban area in Kerala. India s most recent census showed that s population had grown at an annual rate of 1.9% ( ). New migrants to the city constitute 7.6% of the overall population, putting it in the same bracket as larger cities such as, Delhi and. Due to a lack of educational and employment options residents have traditionally sought opportunities in other Indian states, as well as abroad, most notably in the Middle East. Despite being employed outside of their native city, residents continue to maintain strong ties to their families and the community. The money that they repatriate contributes significantly to the local economy and partly contributes to having one of the highest incomes per capita income in India at USD 2,002 (2006). When one looks at the profile of residents, contradictions emerge. With a literacy rate of greater than 94%, residents are among the most educated Indians. Yet the number of schools and universities are generally considered inadequate. Indeed, only 407 institutes of higher education exist in Kerala, a figure that places it towards the bottom of the list in this category amongst Indian states. This has traditionally led to many of Kerala s brightest students to pursue higher education outside of the state. In the past, a lack of employment options has also forced many residents to seek opportunities outside of the city. A poor 2% annual employment growth rate has led to an unemployment rate of 27%. Unionized labour has historically been strong in, due partly to the high number of jobs linked to the Port of Cochin. The economic resurgence that has seen in the past five years is sure to improve s employment figures. While the spice trade, jewellery trade and local seaport have traditionally been the largest employers, IT parks and SEZs are now attracting many new corporate employers to the city. These new technology centres, along with the upgrade to the Port of Cochin, are projected to create over 300,000 new jobs over the next five years, effectively doubling the working population of the city. Many of these jobs will be filled by new migrants to the city, which will create additional demand in the residential sector and boost retail activity within the city. Fig 8: Higher Educational Institutes Goa Karnataka Chandigarh Andhra Pradesh Orissa Maharashtra Gujarat Madhya Pradesh Tamil Nadu Punjab Rajasthan Kerala Delhi Uttar Pradesh West Bengal Per 1M Population Source: Government of India, Ministry of Human Resource Development

9 India s Rising Urban Star, 2008 Business Environment & Governance s economic development is a top priority for the Government of Kerala. While there are persistent concerns about the state s political direction, the government has shown leadership in its development of key infrastructure throughout the city. Important airport, seaport, highway and SEZ projects have been launched and completed throughout the city. These projects have been critical in attracting some of India s leading firms to the city. The Government of Kerala has designed a package of incentives and policy measures to promote investment in the state and create a more businessfriendly climate. These, along with s good rating in the 2008 India Real Estate Transparency Index position the city as one of the most favoured Emerging Cities to conduct business. Fig 10: Kerala State Policy Measures Policy Industrial Policy Biotechnology Policy Information Technology Policy Energy Policy Development Focus Small and medium scale industries Traditional Industries Infrastructure Knowledge base creation Pipeline technologies Educational and R&D institutions Business infrastructure for IT Global Centre for excellence in human resources Development of renewal energy technology Promotion of renewal energy applications Export promotion The Government of Kerala has shown leadership in emphasizing development of vital infrastructure which has been critical in attracting some of India s leading firms into Fig 9: India Real Estate Transparency 2008 Level City A Most Transparent Delhi Pune Kolkata Chandigarh B Above Average Transparency Nagpur C D E Average Transparency Below Average Transparency Least Transparent Ludhiana Jaipur Ahmedabad Indore Nashik Vijayawada Vizag Thiruvananthapuram Coimbatore Vadodara Goa Mangalore Mysore Bhubaneshwar Lucknow Surat CBD Copyright David Brennan 2006

10 10 India s Rising Urban Star, 2008 Real Estate Overview Compared to India s larger and more mature cities, has a small commercial real estate market that is still in an early stage of development. However, the city s economic resurgence is boosting the real estate market and creating new opportunities across all sectors. The city has also among the most transparent real estate markets of India s Emerging Cities, with levels of transparency comparable to, and. While tourism is driving growth in the hospitality sector, s transformation into an IT/ITES hub is having an impact across the entire real estate landscape. Development of Grade-A office space within new technology parks and SEZs is drawing companies and employees to the city. This is having a significant cascading effect on the retail, residential and hotels sectors. A diverse set of developers and occupiers have already entered the market. In the past, only local and regional developers such as Abad Builders were active in the market. Today, is attracting many pan-indian developers such as DLF and Unitech, as well as international developers such as EMAAR MGF and EmKay Group. Fig 11: Real Estate Dashboard Market Size / Stock Offices Grade A (000s sq m, Q2 2008) Retail (Shopping Malls) (000s sq m, Q2 2008) Number of Luxury Hotels (2008) Market Activity Office Construction Grade A (000s sq m, to 2011) Office Vacancy: Grade A CBD (%, Q2 2008) Grade A PBD (%, Q2 2008) % 0 2.4% Benchmark Values Offices Grade A CBD Rents (USD per sq m pa) PBD Rents (USD per sq m pa) Retail (High Street) Rents (USD per sq m pa) Hotels Room Rates (Luxury, USD) Residential Sales Prices: Prime Market (USD per sq m) Suburban Market (USD per sq m) Grade A Offices Indicative Yields (%) , % Real Estate Activity Indicators (A E) Office Market Retail Market Hotels Market Market Transparency C C B B See Definition of Terms Tejomaya Building at InfoPark,

11 India s Rising Urban Star, Office Market has a fairly small but active office market, with a Grade-A commercial office stock of 198,000 sq m. The market is divided into three business districts that are distinct in not only their location and relative prices, but in the types of properties available and the types of occupiers that are typically found there. The IT/ITES industry is the principle driver of commercial office space in. IT/ITES firms typically require large floor plates, are attracted by low real estate and operating costs, and prefer turn-key solutions. Firms such as Wipro, Tata Consultancy Services and Cognizant Technology Solutions have therefore chosen to set up their operations in the handful of SEZs and technology parks that exist in s peripheral business district (PBD). 69% of the current Grade-A office stock and almost all of the future office development is in the PBD. terms of volume, a great majority of this new development will occur within Infopark. Nearly 1.1 million sq m of additional Grade A space is currently being proposed as part of two other IT parks in s PBD: SmartCity and Cyber City. Should such projects go from the proposal stage to actually being developed, they would create a Grade-A office stock comparable in size to today s, Delhi and. To absorb the large amounts of new office stock that is on the horizon, s economy must continue to grow at a rapid pace and draw in new corporate occupiers. Incentives from the Government of Kerala and technology park operators will be a key factor in ensuring that firms such as Wipro, which is developing a 93,000 sq m campus in Infopark, will continue to choose as part of their business expansion plans. s small but active office market is driven by the IT/ITES industry, much of which is located in the business parks and SEZs located in the city s peripheral business district The banking and finance industry has also started to have a greater presence in. Unlike IT/ITES firms, these corporations seek out smaller units in prime commercial locations. Citibank, AIG, HSBC and ICICI Prudential have all chosen to have their offices in s central business district (CBD). The CBD contains only 25% of the existing Grade- A office stock. While some new development activity is under way in the CBD, it amounts to less than 1% of projected office development. Fig 12: Grade A Office Stock 000s sq m CBD SBD PBD Under Development Source: Jones Lang LaSalle Research, 2008 Existing s secondary business district (SBD) contains just 6% of current Grade-A office stock, and has less than 1% of projected office development. This area is ideally suited for occupiers that wish to be in close proximity to the CBD, want better road connectivity (due to its proximity to NH-47) but are only prepared to pay moderate rent levels. A handful of new developments in the CBD and SBD, as well as new IT park and SEZ projects in the PBD will add nearly 323,000 sq m of grade A office stock over the next 3 years. In Fig 13: Grade A Office Rental Levels US$ per sq m pa Q2,2007 Q3,2007 Q4,2007 Q1, 2008 Q2, 2008 CBD SBD PBD Source: Jones Lang LaSalle Research, 2008

12 12 India s Rising Urban Star, 2008 Fig 14: Grade A Office Rentals Across PBDs in India Delhi Pune Kolkata US$ per sq m pa Fig 15: Office Market Activity Delhi Pune Kolkata Chandigarh Thiruvananthapuram Mangalore Jaipur High Activity Level If is not successful in drawing in additional corporate occupiers, a supply/ demand mismatch may depress rental values. We have already witnessed such a trend during the second half of 2007 when rental values fell in the PBD as new supply came online. Central Business District (CBD) Mahatma Gandhi Road, known locally as MG Road, has traditionally been the heart of s commercial activity. Today, MG Road, along with Marine Drive, makes up s Central Business District. Due to lack of available land parcels, very little new development has been built recently. While mostly small-scale projects are coming up within the CBD, one notable large-scale development is the Kerala Trade Centre, which is being constructed by the Kerala Chamber of Commerce and Industry. Scheduled to be completed by the end of 2008, the KTC is a 12-storey, 17,000 sq m mixed-use project for commercial, retail and residential purposes. The existing stock in the CBD is characterized by small floor plates, poor facility management and lack of amenities, such as integrated air handling units. Financial institutions, airlines, travel agencies and government bodies are the typical occupiers. CBD rents range from USD per sq m per annum.

13 India s Rising Urban Star, Secondary Business District (SBD) The areas in and around Vytilla Junction, Palarivattam Junction and AKG Road comprise the Secondary Business District in. Much like the CBD, land in the SBD is difficult to obtain. Other similarities include small floor plates, lack of amenities and poor facility management. In contrast to the CBD, the SBD has seen some construction of higher quality office space in the Vytilla and Palarivattam Junction areas. The SBD also offers better road connectivity than the CBD due to its proximity to NH-47. The neighbouring SEZ and large IT parks create a spillover effect with smaller occupiers choosing to set up in the SBD. Occupiers include banks, travel and tour companies, and telecom firms. SBD rents range from USD per sq m per annum. Peripheral Business District (PBD) The PBD is where the vast majority of office development activity in is occurring. The emerging districts of Edapally and Kakkanad are favoured by developers due to the availability of large land parcels, good road connectivity (NH-47) and proximity to the International Airport. The Cochin SEZ, Infopark, Muthoot Technopolis and Smart City are all located in the PBD. Within these IT parks and SEZs, large-sized grade A office space with facility management services are being offered. The PBD is the hub of IT/ITES activity in. Companies such as Wipro, Tata Consultancy Services, Cognizant Technology Solutions and Outsource International Partners have all occupied or have developed their own office property in the PBD. PBD rents range from USD per sq m per annum. Availability of large land parcels, good road connectivity and proximity to the International Airport are some of the reasons that developers and occupiers favour s peripheral business district Fig 16: Grade A Office Vacancy Levels 14% 12% 10% 8% 6% 4% Fig 17: Grade A Office Capital Values 2,500 2,000 US$ per sq m 1,500 1, % 0% CBD SBD PBD 0 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Q2, 2008 CBD SBD PBD Note: Grey bars in above chart indicate possible range of values Kerala Landscape

14 14 India s Rising Urban Star, 2008 MG Road has been the traditional high street in. NH-47 is being transformed into a mall corridor with no less than 6 malls under construction Retail Market A retail revolution has hit India and is no different. With rising incomes and changing attitudes towards spending fuelling consumerism, the retail property market in is heating up. As with other Emerging Cities in India, retail activity in has traditionally been concentrated on a central high street. This is about to change in with a variety of new retail formats being developed throughout the city. MG Road has been the traditional high street in. This continues until today with a variety of gold, textile and various other small merchants located along the strip. Marine Drive, a more recent retail destination, is challenging MG Road as the preferred high street in, as is Vytilla Junction. Shops located in these areas are typically small and connectivity is poor. Yet, despite this, prevailing rents on Marine Drive at USD 436 per sq m are the highest in the city. The north-south National Highway 47 is being transformed into a mall corridor. In a city that has only one mall of 3,000 sq m so far, no less than thirteen malls are planned or under construction in. The vast majority of these new malls will be located along NH-47. Builders such as the Prestige Group, Abad Builders, and the EmKay Group are working on mall projects that will be of various standards, specialty and mixed-use formats. Marine Drive and MG Road will also see some development of new malls and retail outlets. The next 3 years are expected to see over 100,000 sq m of new retail space come online in. This supply is expected to not only moderate retail rents on s high streets, but it will also impact traffic and residential patterns as the city continues to grow towards the north and east. With much of the new retail stock coming online within a very short time period, mall rents will remain flat over the medium term as occupier demand catches up with supply. Over-supply is a concern in the short term as the city may not be able to absorb the sudden increase in retail stock. Mall management will no doubt be a key differentiator between retail centres that are successful and those that are not. While key retailers such as Pantaloons, Levi s, Nokia and Provogue are already present in the city, many labels have yet to make their entry into the city. Attracting such key tenants will be a key determinant of success for malls. Fig 18: Retail Market Activity Delhi Kolkata Pune Ahmedabad Chandigarh Ludhiana Jaipur Bay Pride Mall, Activity Level High

15 India s Rising Urban Star, Hotel Market The outlook for the hotel sector in is very bright due to strong demand drivers. Leisure tourism historically the prime driver of demand is set to experience further growth and currently represents 60% of the overall demand for hotels in. With the Incredible India and God s Own Country marketing campaigns encouraging tourists to visit India, and in particular, s hotel sector has been unable to keep pace with rising demand from leisure tourists and medical tourism. The city is also witnessing an increase in business tourism; its emergence as a preferred location for IT/ITES firms in South India, prominence in Kerala s political and economic map and good air connectivity, with the advent of low cost carriers, have driven this growth. The emerging IT/ITES and banking industries continue to draw business travellers into the city that require business class and 5 star hotels as well as MICE (meetings, incentives, conventions and exhibitions) facilities. While this segment is not the principle driver of demand currently, it will increasingly become important and in our opinion, the city will eventually witness equal distribution of demand amongst leisure and business tourists. The five luxury hotels currently in operation in (Taj Residency, Taj Malabar, Le Meridien, Casino Hilton and Trident) offer approximately 600 rooms and are running at an occupancy rate in excess of 65%. While the Taj Residency and Le Meridien do offer some conference and convention halls, demand for these facilities greatly exceeds the supply. Fig 19: Hotel Market Activity Delhi Goa Jaipur Kolkata Pune Thiruvananthapuram Ahmedabad Fig 20: Luxury Hotels in Activity Level Hotel Completion Date Rooms Le Meridien Operational 228 Taj Residency Operational 108 Taj Malabar Operational 96 Trident Operational 85 Casino Hilton Operational 67 Crown Plaza Hilton Garden Inn (Kakkanad) Current and future supply ITC Sheraton Hilton Group (Marine Drive) High Major hotel operators are rushing into with at least five major luxury hotel projects announced. The number of business class and 5-star+ rooms is expected to more than double over the next three years. Additional MICE facilities will also be built and are expected to improve the overall performance of these hotels. Demand will continue to be driven by leisure travels over the short term as more and more corporates continue to set up shop in the city. The IT/ITES and banking industries will need to continue to develop if the city is to absorb all the supply that is slated to come online. Taj Malabar Hotel,

16 16 India s Rising Urban Star, 2008 Residential Market The landscape of is changing with new highrise developments replacing the traditional bungalows, independent houses and small apartment complexes, which used to dot the city The residential real estate market in has witnessed unprecedented growth over the past four years in terms of capital values and development activity. All micro-markets of the city have seen a flurry of development activity with a majority of it focused on suburban districts. The landscape of is changing with new high-rise developments replacing the traditional bungalows, independent houses and small apartment complexes, which used to dot the city. Major developers such as DLF, the Prestige Group, ABAD Builders, Skyline Constructions, the Puravankara Group are active in all areas of the city. While a majority of the demand can be attributed to the growing local economy, a significant portion of demand is generated from NRKs and other investors from India, the Persian Gulf and overseas. Despite capital values in having hit an all time high, they still appear reasonable compared to those found in other Indian and international markets. Absorption rates in the prime residential areas are approximately 90%. While a lower rate of 72% in the suburban residential areas can be attributed to developers building ahead of anticipated demand from neighbouring SEZs that are still under construction, the 63% absorption rate found in the secondary residential areas may be a source of concern going forward. Fig 21: Residential Capital Values 4,500 4,000 3,500 US$ per sq m 3,000 2,500 2,000 1,500 1, Prime Secondary Suburban Source: Jones Lang LaSalle Research, 2008 Fig 22: Residential Micro-Market Locales Prime Secondary Suburban Marine Drive Off M.G. Road Kaloor Palarivattom Panampilly Nagar Girinagar Gandhi Nagar Kakkanad Edapally Aluva Kalamassery Tripunithura Adjacent to Pandit Kuruppan Road Musical Walkway, Marine Drive, Source: Jones Lang LaSalle Research

17 India s Rising Urban Star, Closing Thoughts was once a leading city of trade and commerce within India. Today, it has many of the right ingredients to become once again an economic hub within India. To achieve its potential, however, will need to have visionary leaders who have the ability to take the city forward. A stable government is required, one that is focused on the sustainability of s most valuable resources its citizens and the environment. With a 94% literacy rate, should be commended with what it has achieved in primary education. Going forward, addressing the need for higher education must be a top priority. will not be able to compete with India s other Emerging Cities if it has to send its citizens away for higher education and hope that they return. The city runs the risk of staying at the lower end of the ITES service delivery spectrum and failing to move up the value chain into industries such as biotechnology/pharmaceuticals and aerospace design. By investing in institutes of higher education within the city, will not only be educating its citizens, but will also be developing the R&D infrastructure that is required to foster development of the high tech and life sciences industries. Tourism is perhaps what is most synonymous with, and Kerala in general. Thus far, the hospitality industry has done well as individual players have taken advantage of the tremendous tourism potential of the city. As the Government of Kerala moves beyond building airports and seaports to handle additional tourists, it must now focus on a comprehensive strategy that will enable the industry to continue to flourish. Incentives, tax schemes and regulatory coordination are required to ensure that remains a competitive option for tourists who increasingly have options for leisure travel within India. Protecting the natural resources that draw millions of tourists each year will be a challenge as the city strives for greater economic growth and real estate development. Keralites are very conscious of their environment, sometimes to the point where it hinders economic development and job growth. City leaders must actively address issues of zoning, long term planning, infrastructure investment, private sector participation and environmental protection. Finding the right balance between growth and sustainability, will be a key determinant of the city s future success. Continued strong leadership that accounts for growth, human capital development, and environmental protection is what requires as it continues to develop into India s rising urban star Like many Indian cities, is riding the IT wave to prosperity. While much of its current success is due in large part to the IT sector, it must ensure that it does not get complacent in developing other sectors of its economy. has already crossed the biggest hurdle that many developing cities in India face infrastructure. The air, sea, road and telecommunications connectivity that has, combined with its abundant and cheap supply of labour and real estate, mean that the city is poised for significant economic growth and real estate development across all sectors.

18 18 India s Rising Urban Star, 2008 Definition of Terms Economic Dashboard Population: Population refers to urban population in the Ernakulam district in Employment: Refers to the number of persons engaged in labour and receiving remuneration payment or earning business income, including fully employed staff and workers in state-owned, collective-owned or other kinds of economic sectors and otherwise employed persons. Figures are calculated using s City Development Plan and an employment growth rate of 2% from 2001 until GDP: Refers to the gross domestic (i.e. regional) product of a location. Population Growth: Annualized decadal growth rate from the Census of India GDP Growth: Refers to the annual rate of growth between 2003 and 2005 in gross state domestic product at factor cost at current prices (as of January 31, 2007) for the state of Kerala. Air Passengers: Refers to the number of domestic and international passengers that used Cochin International Airport. Freight Traffic: Refers to the volume of freight transported by various means, measured in millions of tons. FDI as a % of GDP: Foreign direct investment refers to investments made inside Kerala by foreign enterprises and economic organisations or individuals as a percentage of the state s gross domestic product for that year. Income / Capita: Refers to total estimated household income equivalent divided by population. Savings / Capita: Refers to total estimated savings divided by the population. Disposable Income: Refers to the actual income at the disposal of a household that can be used for final consumption, other non-compulsory expenditure and savings, which is part of the urban households income that can be disposed by the urban households themselves. Higher Education Institutions: Refers to the number of higher education institutions providing higher education courses and training for senior professionals. They include full-time universities, colleges, high professional schools, high professional vocational schools and others. High education institutions are set up according to the central government evaluation and approval procedures. Total Enrolments: Refers to total number of students studying at qualifying higher education institutes regardless of the course or degree being pursued. Literacy Rate: Percentage of adults (15 years and older) within the urban population of Ernakulam who can read and write. Unemployment Rate: The registered urban unemployment rate refers to the ratio of the number of the registered unemployed to the sum of the number of persons employed and registered unemployment in a location. Real Estate Transparency: Rating of A through E, with A being most transparent and E being least transparent, as determined by the Jones Lang LaSalle 2008 India Real Estate Transparency Index. Human Capital Index: Rating of A through E, with A representing the highest relative level of human capital available in a city and E representing the lowest relative level. Score for is taken from the World Winning Cities 2008 India Map. Real Estate Dashboard Offices Grade A Stock: Refers to the total completed Grade A office space (occupied and vacant). Grade A reflects an above average property in the market, with quality criteria being at the upper end of the scale. Retail Stock: Represents the total stock of all malls in. Number of Luxury Hotels: Refers to the number of five-star hotels and luxury hotels with five-star facilities. Office Construction Grade A: Refers to the total amount of Grade A office space in properties where construction has commenced, and completion is expected by Grade-A is local standard. Office Vacancy Grade A: Refers to Grade A office floor space (as a % of total Grade A stock) in existing properties that are physically vacant, ready for occupation today and being actively marketed. Benchmark Rents: Refer to the typical openmarket rents (within a range) that could be expected for a unit of the highest quality and specification in the best location expressed in US Dollar per sq m per year. Grade A Office Rents: Refers to net effective office rents including management fees expressed in US Dollar per sq m per year. Retail (High Street) Rents: Refers to retail rents on ground floor property on the Marine Drive high street expressed in US Dollar per sq m per year. Hotel Room Rates: Refers to the average price to be paid for any deluxe room expressed in US Dollar per night. Residential Prices: Refer to typical prices (within a range) for high-end residential projects in US Dollar per sq m. Grade A Offices Indicative Yields: Refer to the best (i.e. lowest) yield estimated to be achievable for a notional office property of the highest quality and specification. Indicative yields represent Jones Lang LaSalle Meghraj s market view, based on a combination of market evidence where available and a survey of expert opinion. Exchange Rate Used As of June 30 th, 2008: 1 INR = USD 1 USD = INR

19 Kerala Backwaters

20 October 2008 Jones Lang LaSalle Regional Headquarters Chicago 200 East Randolph Drive Chicago, IL tel fax London 22 Hanover Square London W1A 2BN tel fax Singapore 9 Raffles Place, #39 00 Republic Plaza, Singapore tel fax Jones Lang LaSalle Meghraj Offices Level 3 Concorde UB City #24 Vittal Mallya Road tel fax Prestige Sterling Square Level 4, Madras Bank Road Next to Airline Hotel tel fax Chandigarh rd Floor SCO Sector 17 C Chandigarh tel fax Level 8 Tower II TVH Beliciaa Towers Block No 94 MRC Nagar tel fax Contacts To find out how Jones Lang LaSalle can assist in making real estate decisions in India, contact one of the following people: Mr. Karun Varma Managing Director & Tel: Karun.Varma@jllm.co.in Coimbatore No.121, Old No 56 Thiruvenkata Swamy Road (West) R.S.Puram Coimbatore tel fax Delhi Ashoka Estate Barakhamba Road Connaught Place New Delhi tel fax Gurgaon Level 9 Tower A, Global Business Park, Mehrauli Gurgaon Road Sector 26 Gurgaon Haryana tel fax Gurgaon Building Operations th Floor Tower A Signature Towers South City 1 NH 8 Gurgaon tel Mr. Deepak Bhavsar Managing Director Strategic Consulting & Land Tel: Deepak.Bhavsar@jllm.co.in Level 1 Laxmi Cyber Centre Road #12 Banjara Hills tel fax Business Communication Center Chiramel Chambers Kurisupally Road Ravipuram tel fax Kolkata Berger House Premises No rd Floor Park Street Kolkata tel fax rd Floor Khanna Construction House 44 Dr. R.G. Thadani Marg Worli tel tel fax Mr. Avinash Mirchandani Programme Manager World Winning Cities Tel: Avinash.Mirchandani@jllm.co.in Level 13 Express Tower Nariman Point tel fax st Floor 2 Brady Glady s Plaza 1/447 Senapati Bapat Marg Lower Parel tel fax Pune 6 th Floor Amar Avinash Corporate Plaza, Bund Garden Road (Near Inox) Pune tel fax Mr. Jeremy Kelly Programme Director World Winning Cities London Tel: +44 (0) Jeremy.Kelly@eu.jll.com World Winning Cities would like to acknowledge the contributions of the following individuals from Jones Lang LaSalle Meghraj for this report: Susan Cyriac, Girish K.S., Y. Umakanth, Shahnawas K.M., K.S. Abhilash and Gaurav Agarwal. COPYRIGHT JONES LANG LASALLE 2008 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.